Fannie, Freddie And The Constitution

Posted by Tom Lindmark on March 29th, 2009

This post isn’t about what you think it might be. I need, however, to set the stage.

There is news out tonight that Fannie and Freddie’s regulator, the Federal Housing Finance Finance Agency (FHFA) is considering letting the two provide warehouse lending to mortgage banks. This type of financing has dried up during the credit crisis. Part of the pullback is probably due to the rediscovery of religion by the nations bankers and partly an attempt to squeeze the competition.

The nation’s mortgage system is getting clogged up by would be refinancers swamping lenders with business. The big banks don’t have the capacity to deal with the volume and the third party originators are somewhat hamstrung by their inability to get interim financing to carry their inventories of new loans until they can package them and sell them to F&F.

So FHFA is thinking about letting F&F step in and fill the gap that the banks have created. The problem is that the two have no expertise in this type of lending. Never done it before and don’t to the best of my knowledge have the systems to control it. Oh, and one other small problem. They have no authority under their charter to do this.

And that, finally and thank you for your patience, is where all of this gets out of control. It is of a piece with the Geithner Plan’s scheme to use the FDIC to guarantee loans in furtherance of the PPIP. A role for which the FDIC has no charter. Consider the rationale from the head of the FHFA for this move.

Mr. Courson said he believes the regulator can give Fannie and Freddie temporary authority to help fund warehouse loans and that it won’t be necessary to seek congressional approval for this expansion of the two companies’ role. “We just don’t have the luxury of time for going through the legislative meat grinder,” he said.

Yes, indeed, we cannot indulge the luxury of adhering to the dictates of the Constitution. I don’t know what I find more infuriating about this. The arrogance of the administration or the complete abrogation of responsibility on the part of the Congress. I can’t recall a time when there were fewer people in the legislative branch who were more unwilling to stand for principal regardless of the situation.

The economy will recover eventually. With the proper help from government it may recover a bit faster. The government will not recover if the responsible parties do not exercise those powers delegated to them.